Equitable Group Inc. is combing through its mortgage loans to flag applications that might have come from a group of 45 brokers recently suspended for fraud by a rival lender, CEO Andrew Moor said Friday.
"We are obviously connected with the market and we try to figure out who those brokers might be to perhaps put a little bit of special attention there," Mr. Moor told analysts on the company's second-quarter earnings conference call. "We think we know who some of the people might be and we are very aware of that and are monitoring that."
His comments come in the wake of an admission by alternative mortgage lender Home Capital Group Inc. that it had cut ties with brokers and fired two underwriters after it uncovered evidence that some borrowers had been approved for insured mortgages with fake employment letters that overstated their incomes. Company officials said they are confident none of their employees was complicit in any fraud.
Like Home Trust, Toronto-based Equitable, which operates as Equitable Bank, uses mortgage brokers to target high-risk borrowers including self-employed workers and new immigrants, largely through uninsured mortgages offered at higher interest rates to compensate for the added risk.
It has been working to expand its reach into the business of insured mortgages to prime borrowers and said it originated $380-million worth of prime, insured mortgages in the second quarter, up from $191-million in the first quarter and nearly double the same period last year.
Mr. Moor said he didn't believe the company's strong growth in insured mortgages this year was a result of having picked up more business from brokers cut loose by Home Trust.
"We don't believe that our gains are coming from that source based on our understanding of what's going on," he said. "To be clear, we don't have lists of other lenders who they may choose to be not dealing with any further, for example, so we don't know with any certainty who these people are."
No single broker has contributed more than 2 per cent of Equitable's mortgage volume over the past 18 months, Mr. Moor said.
The lender has long required staff to independently verify borrowers' incomes, by calling an employer or checking bank statements. It also has policies separating its sales teams from its underwriting department, including a dedicated "mortgage officer team" that collects and verifies the documentation supporting a mortgage applications that is separate from its underwriting department in order to prevent "collusion."
"None of our credit management staff have volume targets, nor are they rewarded for volumes they achieve," he said.
The company also randomly tests 200 individual mortgage files each month looking for potential problems or fraud. Senior executives separately review 30 files every month just on Equitable's growing single-family mortgage business.
Mr. Moor also dismissed concerns raised this week by Canada Mortgage and Housing Corp. that soaring prices for single-family homes are putting Toronto's housing market at high risk of a correction. "Some of these prices in Toronto don't actually particularly alarm us," he said. "We see Toronto emerging as a super-city with a green belt around it."
He added that Equitable has "a very low appetite for condos in the city, particularly downtown condos."
Equitable reported profit of $33.5-million in the second quarter. Diluted share profit was $2.06, up 25 per cent from the same period last year. Single-family mortgage originations rose 28 per cent from the second quarter of last year, to $641-million.
The company also said it is making progress toward launching a digital bank in the fourth quarter of the year.